Akorn, Inc. (AKRX), Hi-Tech Pharmacal Co. (HITK): The New Leader in Ophthalmology

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The global ophthalmology drug and devices market is seeing substantial growth recently due to the increasing frequency of eye disorders in the older population.

This space has a bright future outlook, and according to Markets and Markets, it is projected to reach a market size of $36 billion by 2014, increasing at a CAGR of 5.4% during 2009-2014. The drugs addressable market is expected to rise to $19.8 billion by the year 2014, increasing at a CAGR of 4% during the period 2009-2014.

Akorn, Inc. (NASDAQ:AKRX)

Akorn, Inc. (NASDAQ:AKRX) specializes in the manufacture and marketing of diagnostic and therapeutic ophthalmic pharmaceuticals products. It has been trying to secure a higher market share by making a series of acquisitions. The company recently acquired rival Hi-Tech Pharmacal Co. (NASDAQ:HITK) to enhance its product offerings outside ophthalmics.

In this article, I’ll focus on analyzing Akorn, Inc. (NASDAQ:AKRX)’s business and financial performance, its recent acquisition of Hi-Tech Pharmacal Co. (NASDAQ:HITK), and how it has benefited in terms of its enhancing its market presence and enriching its product range.

Company performance analysis

Source: Company filings 10-K.

The company is on its road to success and has registered an exceptionally high revenue growth in the last few years. This growth was the result of new product launches, the revival of dormant products, and acquisitions. The company received Food and Drug Administration approval for vancomycin hydrochloride capsules and progesterone capsules. Some drugs were relaunched to establish an ongoing market presence for these products, as well as filling any market shortage needs. Akorn, Inc. (NASDAQ:AKRX) took over the business assets and principal manufacturing plant of Kilitch Drugs (India) Limited three branded, injectable drugs from Lundbeck, and AVR, the makers of the TheraTears line of over-the-counter eye care products.

The growth in the company’s top line did not fully trickle down as it ramped up its research and development activities, both internally and through strategic partnerships. Selling, general, and administrative expenses also increased resulting from a higher headcount to support growth, operating expenses associated with the expanded operations in India and marketing costs associated with the promotion of AVR business.

Source: Morningstar.

Operating cash flow growth is one indicator that can give an insight about the company’s survival prospects. Although Akorn, Inc. (NASDAQ:AKRX) is doing far better than its competitor, Novartis (NVS), it is lagging behind Allergan, Inc. (NYSE:AGN). The reason can be very well explained by Akorn, Inc. (NASDAQ:AKRX)’s much higher cash conversion cycle of 136 days as compared to 70 days reported by Allergan, Inc. (NYSE:AGN).

What results to expect ahead?
The addition of Hi-Tech Pharmacal Co. (NASDAQ:HITK) adds immensely not to Akorn’s existing eye drug portfolio, but it goes beyond that as the company will now be offering other niche dosage forms such as oral liquids, topical creams and ointments, nasal sprays, and otics, which has a U.S. market demand worth $16.2 billion. Hi-Tech Pharmacal Co. (NASDAQ:HITK)’s robust product pipeline is a great addition, and it enhances the growth opportunities for the combined company.

Source: Company presentation.

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